Economic and Revenue Outlook: June 2014

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1 Economic and Revenue Outlook: June 2014 May 28 th, 2014 Oregon Office of Economic Analysis Mark McMullen Josh Lehner

2 Economic Overview 2

3 Strong Job Growth Recently 3.5% Oregon Employment Growth 6 Month Annualized Growth Housing and Related Industries Growth 2014q1, Y/Y % Change 3.0% 10% 9% 2.5% 8% 2.0% 7% 6% 1.5% 5% 4% 1.0% 3% 2% 0.5% Employment 2013 COS Housing Boom Rates 1% 0% Forecast Actual 3

4 Acceleration Outside of Portland 8% Oregon Employment Growth 6% 4% 2% 0% -2% -4% -6% -8% Jan-84 Jan-88 Jan-92 Jan-96 Jan-00 Jan-04 Jan-08 Jan-12 Portland All Other 4

5 4 of 5 Counties Adding Jobs 100% Oregon Counties Adding Jobs Share of Total, Year-over-Year Gains, q1 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

6 Then and Now, Pt 1 0% Oregon Employment Loss by Recession '73 '69 '60 '90 '48 '53 '01 '80-2% '07 Percent Job Loss -4% -6% -8% -10% -12% Peak 1 Yr 2 Yr 3 Yr 4 Yr 5 yr 6 yr 7 Yr 8 Yr 6

7 Then and Now, Pt 2 25% 20% 15% 10% 5% 0% Severe Recessions in Oregon 1978 / 2005 Early 80s U-6 Great Recession U / / / 2011 Great Recession U-6 Early 80s U / / % -5% -10% -15% -20% Oregon Manufacturing Employment and Severe Recessions Great Recession Early 80s -25% Peak 5 Year 10 Year 15 Year 7

8 Net Migration Rates (Smoothed percentage changes) 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% IN Male OUT Male IN Female OUT Female 0% Age Office of Economic Analysis

9 Oregon: Gain/Loss of Aggregate Gross Income due to Migration, (in million $; IRS migration data) -$138.3 Northeast Region +$ $15.3 Midwest Region +$96.6 +$692.7 West Region (excluding CA, ID, WA) +$6.9 South Region +$66.5 Total Domestic: Foreign +$4.0

10 Oregon: Gain/Loss of Aggregate Gross Income due to Migration, (in million $; IRS migration data) -$87.5 Northeast Region +$ $6.8 Midwest Region +$79.9 +$206.4 West Region (excluding CA, ID, WA) +$5.1 South Region +$19.9 Total Domestic: Foreign -$5.2

11 Oregon s Brain Gain 4.0 Estimated Odds Ratios: Relative Probability of Moving Compared to Someone Without a Degree In Migrants Out Migrants Less than HS Graduated HS Some College Associate's Degree Logit Model Based on ACS Data Graduated College Masters, Prof or PhD 11

12 Where Young People Come to Retire? 1.8 Estimated Odds Ratios: Relative Probability of Moving Compared to Employed Adults 1.6 In Migrants Out Migrants Employed Unemployed Not In Labor Force Logit Model Based on ACS Data 12

13 Revenue Outlook 13

14 Forecast Evolution: Improved Economic Outlook Leads to More Expected Revenue Billions $17.6 $17.4 $17.2 General and Lottery Fund Revenues BN $17.0 $16.8 $16.6 $16.4 $16.2 $16.0 $15.8 Dec '10 Mar '11 May 11 Sep '11 Dec '11 Mar '12 Jun '12 Sep '12 Dec '12 Mar 13 May 13 Sep '13 Dec '13 Mar '14 Jun '14 Sep '14 Forecast Close of Session & Special Session 14

15 Not Kicking Yet Millions $350 $ Personal Income Tax Kicker $250 $200 $150 $100 $50 Optimism 27% Tracking 20% Legislative Changes 53% $0 Threshold June '14 15

16 Fewer Payments Come In Millions $1,000 $900 $800 $700 $600 $500 $400 $300 $200 $100 Year-End Tax Payments Run Out of Steam in Late April Cumulative Personal Income Tax Payments Forecast $0 January February March April May June

17 and Fewer Go Out Millions -$100 -$200 Refund Checks Were Small this Year Personal Income Tax Refunds, Cumulative January February March April May June $0 -$300 -$400 -$500 -$600 -$700 -$800 -$900 -$1, Forecast 17

18 Corp Collections Spring to Life 80% Corporate Excise Tax Collections % change over year ago, 3 month moving sum 60% 40% Preliminary 20% 0% -20% -40% Jul Aug Sep Oct Nov Dec Jan 2013 Feb Mar Apr May June July Aug Sep Oct Nov Dec Jan 2014 Feb Mar Apr May 18

19 Matched 2013 Tax Returns % Change Relative to % 50% 40% 30% Affected by M66 in 2013 and/or 2012 (2.2% of filers, 23% of tax burden) Total Not Affected by M66 20% 10% 0% 10% 20% 30% Dividends Taxable IRAs Capital Gains Business Wages Sched E Oregon Taxable Income Oregon Tax After Credits 19

20 The Tricky Part 50% 40% 30% 20% 10% 0% -10% -20% -30% -40% 8.4% Growth in Year-End Personal Income Tax Payments, April-June Quarter, % 49.4% 30.8% 28.3% 24.6% 25.1% 11.9% 15.2% 17.9% 11.2% 5.3% 3.3% 0.2% -1.0% -2.8% -6.8% -36.6% -50% -45.4%

21 Capital Gains: Ready for Takeoff? 12,000,000,000 10,000,000,000 Wilshire 5000 Stock Price Index (Right) Oregon Capital Gains Realizations (Left) ,000,000, ,000,000, ,000,000, ,000,000,

22 Volatility: Risk vs Return 20% 15% 10% 5% 0% -5% -10% Revenue Growth FY85 - FY13 5.6% 7.5% Major Tax Instrument (FY12) WA Retail Sales: 45% of GF OR Personal Income: 85% Volatile but growth advantage builds over time -15% -20% Washington Retail Sales Oregon Personal Income How do you value stability vs return? 22

23 Aging Revenues Income and Spending by Age 2012 Consumer Expenditure Survey, All Consumer Units Expenditure Chage for 65+ Households Relative to Year Old Households -80% -60% -40% -20% 0% 20% $90,000 Health care $80,000 Reading $70,000 Cash Contributions $60,000 Miscellaneous $50,000 Personal care $40,000 $30,000 $20,000 $10,000 $ Under 25 years years years years years years 75 years and older Housing Food TOTAL Entertainment Transportation Alcoholic beverages Apparel and services Income Expenditures Taxable Income General Sales Tax Base Tobacco & supplies Insurance & pensions Education 23

24 Border Tax Differential 24

25 Table R General Fund Forecast Summary (Millions) June 2014 General Fund Forecast Summary 2013 COS Forecast March 2014 Forecast June 2014 Forecast Change from Prior Forecast Change from COS Forecast Structural Revenues Personal Income Tax $13,558.2 $13,771.6 $13,816.7 $45.0 $258.5 Corporate Income Tax $1,056.6 $1,005.9 $1,007.6 $1.7 -$49.0 All Other Revenues $1,027.9 $1,004.4 $ $13.6 -$37.1 Gross GF Revenues $15,642.6 $15,781.9 $15,815.0 $33.1 $172.4 Offsets and Transfers -$ $67.3 -$72.7 -$5.4 $48.1 Administrative Actions 1 -$18.2 -$12.7 -$12.7 $0.0 $5.6 Legislative Actions -$ $ $136.9 $0.0 $0.0 Net Available Resources $15,910.1 $16,027.0 $16,079.5 $52.5 $169.4 Confidence Intervals 67% Confidence +/- 5.1% $ % Confidence +/- 10.2% $1,605.8 $15.01B to $16.62B $14.21B to $17.42B Positive Factor More Jobs = More Personal Income Taxes BI General Fund Reversions ($24.8 mil) 2013 Income Tax Refunds Negative Factor February Session Appropriations ($125 mil) Estate Taxes 2013 Income Tax Final Payments Gain Share 1 Reflects cost of cashflow management actions, ex clusiv e of internal borrow ing. 25

26 Forecast Changes Difference from March forecast, $ millions $175 $ Personal Lottery Total Corporate Other $125 $ $75 $ $25 $0 -$25 -$

27 10-Year Forecast Table R.2 General Fund Revenue Forecast Summary (Millions of Dollars, Current Law) Forecast Forecast Forecast Forecast Forecast Forecast % % % % % % Revenue Source Biennium Chg Biennium Chg Biennium Chg Biennium Chg Biennium Chg Biennium Chg Personal Income Taxes 12, % 13, % 15, % 17, % 18, % 20, % Corporate Income Taxes % 1, % 1, % 1, % 1, % 1, % All Others 1, % % % 1, % 1, % 1, % Gross General Fund 14, % 15, % 17, % 19, % 20, % 23, % Offsets and Transfers (12.0) (72.7) (95.9) (83.8) (39.0) (42.1) Net Revenue 14, % 15, % 17, % 19, % 20, % 22, % Other tax es include General Fund portions of the Eastern Oregon Sev erance Tax, Western Oregon Sev erance Tax and Amusement Dev ice Tax. Commercial Fish Licenses & Fees and Pari-mutual Receipts are included in Other Rev enues 27

28 Biennial Revenue Growth 24% 20% 16% 12% 8% 4% 0% -4% -8% -12% PIT TOTAL 28 28

29 For More Information Standard Contact: 155 Cottage Street NE Salem, OR (503) Social Media: 29

Oregon. December 2013 Economic & Revenue Outlook. Mark McMullen & Josh Lehner Office of Economic Analysis. November 21, 2013

Oregon. December 2013 Economic & Revenue Outlook. Mark McMullen & Josh Lehner Office of Economic Analysis. November 21, 2013 Oregon December 2013 Economic & Revenue Outlook November 21, 2013 Mark McMullen & Josh Lehner Office of Economic Analysis Oregon Economic Outlook All Signs Point To Expansion 1.75 Total Nonfarm Employment